Yum Brands Inc. (YUM), the world's largest restaurant company in terms of system restaurants, is expected to report Q3-2009 results on Tuesday. In the last four quarterly reporting periods, the company's actual earnings exceeded the market's consensus forecast. However, the company is likely to disappoint investors on Tuesday.
Analysts' estimates for the quarter ending September 2009 (Q3) range from a low of -$0.52 to a high of $0.62, with a consensus of $0.583. For the fiscal quarter ending September 2009, the consensus EPS forecast has remained the same over the past week at $0.583 and decreased over the past month from $0.584 to $0.583 (-0.17%). Of the 18 analysts making quarterly forecasts, none raised and 2 lowered their forecast.
Yum Brands Inc, The operator of the Taco Bell, Pizza Hut and KFC chains has been leaning on its international operations as growth remains sluggish in the U.S., but now even the formerly fast-growing China market is a question mark. Even in the second quarter, Mainland China same-store-sales decreased by 4%, following an exceptional growth of 14% in 2008. China division's sales are likely to be impacted by weak system sales performance in Thailand and Taiwan as well. Weak performance in China division is continued to persist, as Chinese consumers have been cutting back more on extras like drinks as they try to save money. Yet, the company is pushing ahead with plans to grow there with 475 new units this year.
Pizza Hut is remains biggest challenge in the U.S. as it competes in a more discretionary, higher guest-check, dinner category. Yum's strategy of transforming Pizza Hut to include a broader line of home meal replacement options including pasta and chicken along with its world famous pizza is yet to yield favorable results. In order to increase sales, Pizza Hut has been promoting offerings as low as $5 and Taco Bell, which contributes 60% of U.S. profits, has been getting set to expand into international markets. KFC has benefited from its healthier grilled chicken and should generate more sales due to its marketing tie-in with the National Football League.
For the fiscal year ending December 2009, the consensus EPS forecast has decreased over the past week from $2.127 to $2.124 (-0.14%) and decreased over the past month from $2.127 to $2.124 (-0.14%). Of the 19 analysts making yearly forecasts, none raised and 1 lowered their forecast.
To alleviate investors' concerns, the company has raised its quarterly dividend by 11% (quarterly cash dividend will increase from $0.19 to $0.21 per share) and also said its board has authorized the repurchase of $300 million worth of shares.
Currently, the stock is trading at $33.15 (14.1x 2010 EPS), compared to the 52 week range of $21.5-$36.96. The stock seems to be appropriately valued at the current levels.
